HOWARD SATTLER: Things are looking good. Well, things are looking better than they are in a lot of other countries of the world. Australia's economy has grown again in the last quarter recorded; point six of one per cent. Now the figures probably don't mean much to many people but the fact they've grown and it was point two of one per cent before that. So we have avoided the recession just - certainly avoided the recession. And the Federal Government stimulus package is probably the reason for that. Multi-billions of dollars put into the economy for buildings and all that sort of thing. Still a lot of it to flow through of course. And what happens at the end of the day, what happens when all the money is spent and the Government wants its money back? Are we going to see taxes substantially raised? Joining me now is Lindsay Tanner, Federal Minister for Finance and Deregulation. Hello Lindsay.
LINDSAY TANNER: Good afternoon, Howard.
HOWARD SATTLER: Can you answer any of those questions? What's going to happen down the track? Will we be hit with - slugged with much higher taxes?
LINDSAY TANNER: We won't be Howard, because in part, there's...
HOWARD SATTLER: I'm recording this, by the way.
[Laughter]
LINDSAY TANNER: There's a natural bounce-back that occurs. The problem we've got is really mostly about a collapse in tax revenues which of course is because of the collapse in economic activity and the fall in mineral prices. So when you get a return of activity that boosts tax revenue. So there is no reason to assume that you have to see a set of tax hikes to cover that gap. The real challenge for the Government is to keep a lid on spending so that we can get the Budget back into surplus as quickly as possible and keep the debt to a minimum.
HOWARD SATTLER: But how can you keep a lid on spending when you're handing out $42 billion to try and - you know, put construction workers into jobs in this country?
LINDSAY TANNER: Well, that $42 billion is over several years, and of course a significant proportion of it has already gone out the door or is part way out the door. And that means, for example, in the next financial year I think the total is estimated to be less than $10 billion and that's out of a federal Budget of around $300 billion. So the calls that have come from some quarters for winding back the stimulus, we think, are premature. It's great that we got these figures today. It shows that the stimulus has been a key factor in avoiding recession in Australia but there are still a lot of threats and uncertainties out there. And keep in mind that in the figuring - in the projections we've got in the Budget, even though they may have to be revised, they assume that the stimulus is in there helping to take some of the load and helping to keep some jobs in place and businesses open. Take it away and you go backwards very significantly.
HOWARD SATTLER: Do your surmise now that we won't need another stimulus package in the short term?
LINDSAY TANNER: [Mobile phone drops out] looking pretty unlikely. We have indicated that we're standing ready for pretty much any eventuality. That's the great lesson we've learned over the last 18 months is be prepared for anything, as I'm sure you've noted. And therefore we've made it clear we don't rule out that possibility. But, given the data we've had over the last few months and today's data, that's looking a pretty unlikely scenario.
HOWARD SATTLER: How important to this recovery, which appears to be happening, is what's occurring prospectively in Western Australia with big projects like Gorgon?
LINDSAY TANNER: Very important at a number of levels. One, confidence. The Gorgon announcement I think has been very significant for the whole of Australia, that we're open for business and that our long term future and the role of the resources sector and the role of WA in that future is as rosy as it's always been. Also just the activity that will flow from announcements like that is extremely important in keeping things ticking over. But I think it illustrates that one of the things that's kept us afloat has just been the enormous pent-up momentum in the economy which WA was the most outstanding example, Howard, where not that long ago you guys were struggling to find people to do all kinds of ordinary jobs. You just had all these problems. That meant there's a lot of momentum in the economy and that's helped keep things afloat.
HOWARD SATTLER: All right. The Greens don't think it's good news. What do you say to them?
LINDSAY TANNER: Oh look, we've had the environmental assessment occur at both the state and national level, and there's a lot of complicated issues there and some further obligations have been imposed on the joint venture partners with respect to Barrow Island. Obviously I'm not the minister directly involved so I can't cite you chapter and verse of the detail. There's always difficult challenges faced in these circumstances, Howard, as I'm sure you know, and you're never going to get complete agreement about what happens.
HOWARD SATTLER: But you will be counting the royalties when they come in, won't you?
LINDSAY TANNER: They will not go astray and they won't go astray at the state level either. And it's an important part of Australia's long-term future. You know, the resource industry is really the backbone of our exports sector now. And although we need to succeed on other export fronts as well - we don't want to be over-reliant on resource exports - it really is the bedrock of our export effort and it's crucial that we're successful in that area.
HOWARD SATTLER: Now, the Treasurer has come out today and - in the wake of the fact the Reserve Bank hasn't increased interest rates... I mean, how could they but it's prospectively going to happen pretty shortly. And he said he - the banks will need to prove they are facing problems if they decide to hike interest rates ahead of the Reserve Bank. But in reality that's a vacuous threat, isn't it? What can you do if the banks suddenly decide they want to increase interest rates?
LINDSAY TANNER: Things are a little bit more complicated than that, Howard, because although the Government can't directly instruct the banks what to do, we do have the capacity to exert a fair degree of indirect pressure. And of course so does public opinion on how the banks behave. So it's not quite as simple as that. And they have had in some cases some justification for some of the movements in interest rates over the past 12 or 18 months because a big proportion of their funding has been overseas borrowed money where the cost of that money has at times been going through the roof...
HOWARD SATTLER: Yeah, but they're still reporting enormous profits.
LINDSAY TANNER: Look, the - well, their profits have actually diminished somewhat in recent times.
HOWARD SATTLER: Yeah, but to what.
LINDSAY TANNER: Well, true, they are still pretty healthy. But I tell you what, I'd rather have profitable banks than banks that have to be propped up by the taxpayer, as has been the case in most other major countries around the world. This is one really good thing for Australia is that the Government hasn't had to buy shares, hasn't had to nationalise banks, hasn't had to bailout banks, so...
HOWARD SATTLER: But you had to give them some guarantees.
LINDSAY TANNER: That's right but these are guarantees that I don't believe will ever need to be called upon. So although that's not the sort of thing you do in normal circumstances, we had to do that because of our dependence on foreign borrowing and the fact that other countries were doing the same thing. We faced a risk in parts of last year where that source of money could have literally dried up had we not done those guarantees.
HOWARD SATTLER: Oh, I agree with that. But if they do start increasing interest rates exclusive of the Reserve Bank, what can you do?
LINDSAY TANNER: Well, I think the key thing is putting enormous pressure on the banks to explain themselves, to demonstrate that it is unavoidable, that the cost of money that they are borrowing and in return lending to all of us, has risen to a significant degree. And we believe in some cases that they were a bit over the top in how they've dealt with this. You've got to look at the total picture over time, compare the movements in their rates they charge you, the customer relative to where the Reserve Bank rates have gone. And the vast bulk of the reductions in the Reserve Bank rates, they have passed on; not absolutely all of it, but the vast bulk of it. And it's debatable as to whether they have done the right thing. But we can put pressure on them and we are doing that, and I'd argue without that pressure you might have seen some higher moves.
HOWARD SATTLER: So are we out of the recession woods now? Can you confidently say that we won't go into recession before things recover around the world?
LINDSAY TANNER: Look, I can't assert that absolutely, Howard, but we're certainly looking in much better shape [mobile phone drops out] front than we were say six or nine months ago. Now, we don't know what is in store with the rest of the world. Many people question, for example, how strong the recovery is in China which is obviously important to Australia. There are still some threats sitting out there on the balance sheets of major banks around the world that could go haywire. But certainly things are now looking much more optimistic than they were six or nine months ago. And the fact that we have avoided a technical recession must - does suggest that it's a situation where we can be pretty optimistic about the future. But we are being cautious because we learned by bitter experience over the last 18 months to expect any possibility.
HOWARD SATTLER: All right, appreciate your time again. Thanks Lindsay.
| Media Contact: | Website: |
|---|---|
| Nardia Dazkiw - 0418 144 690 | www.financeminister.gov.au |
